UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 2006
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No.: 0-16035
SONO-TEK CORPORATION
(Exact name of small business issuer as specified in its charter)
New York 14-1568099
------------------------------- -------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2012 Rt. 9W, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone no., including area code: (845) 795-2020
Indicate by check mark whether the small business issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
small business issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES |_| NO |X|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding as of
Class January 9, 2007
----- ---------------
Common Stock, par value $.01 per share 14,360,541
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Consolidated Financial Statements: 1 - 3
Consolidated Balance Sheets - November 30, 2006 (Unaudited) and
February 28, 2006 1
Consolidated Statements of Income - Nine Months and Three Months Ended
November 30, 2006 and 2005 (Unaudited) 2
Consolidated Statements of Cash Flows - Nine Months Ended November 30, 2006
and 2005 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 7
Item 2 - Management's Discussion and Analysis or Plan of Operations 8 - 12
Item 3 - Controls and Procedures 13
Part II - Other Information 14
Signatures and Certifications 15 - 19
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
November 30, February 28,
2006 2006
Unaudited
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,147,896 $ 1,740,804
Accounts receivable (less allowance of $23,900 and $18,500
at November 30 and February 28, respectively) 869,232 955,094
Inventories 1,519,429 1,520,397
Prepaid expenses and other current assets 68,290 68,024
Deferred tax asset 270,000 270,000
------------ ------------
Total current assets 4,874,847 4,554,319
------------ ------------
Equipment, furnishings and leasehold improvements
(less accumulated depreciation of $851,029 and
$788,245 at November 30 and February 28, respectively) 366,777 257,299
Intangible assets, net 31,502 29,922
Other assets 7,171 7,171
Deferred tax asset 315,000 315,000
------------ ------------
TOTAL ASSETS $ 5,595,297 $ 5,163,711
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 148,017 $ 330,701
Accrued expenses 606,557 498,504
Current maturities of long term debt 26,938 25,415
------------ ------------
Total current liabilities 781,512 854,620
Long term debt, less current maturities 58,492 79,114
------------ ------------
Total liabilities 840,004 933,734
------------ ------------
Commitments and Contingencies -- --
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares authorized,
14,360,541 and 14,354,416 shares issued and outstanding
at November 30 and February 28, respectively 143,606 143,545
Additional paid-in capital 8,299,536 8,247,091
Stock subscription receivable (15,750) (15,750)
Accumulated deficit (3,672,099) (4,144,909)
------------ ------------
Total stockholders' equity 4,755,293 4,229,977
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,595,297 $ 5,163,711
============ ============
See notes to consolidated financial statements.
1
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended November 30, Three Months Ended November 30,
Unaudited Unaudited
2006 2005 2006 2005
---------------------------- ----------------------------
Net Sales $ 5,239,698 $ 5,082,730 $ 1,624,015 $ 1,670,586
Cost of Goods Sold 2,624,967 2,596,543 812,990 853,436
----------- ----------- ----------- -----------
Gross Profit 2,614,731 2,486,187 811,025 817,150
----------- ----------- ----------- -----------
Operating Expenses
Research and product development costs 596,624 446,512 219,289 151,618
Marketing and selling expenses 965,940 831,605 305,604 252,810
General and administrative costs 629,188 600,711 190,393 188,338
----------- ----------- ----------- -----------
Total Operating Expenses 2,191,752 1,878,828 715,286 592,766
----------- ----------- ----------- -----------
Operating Income 422,979 607,359 95,739 224,384
Interest Expense (4,834) (4,642) (1,526) (1,212)
Interest Income 49,254 7,811 20,380 3,931
Other Income 8,692 56,100 2,831 53,100
----------- ----------- ----------- -----------
Income from Operations Before Income Taxes 476,091 666,628 117,424 280,203
Income Tax Expense 3,281 250 3,281 0
----------- ----------- ----------- -----------
Net Income $ 472,810 $ 666,378 $ 114,143 $ 280,203
=========== =========== =========== ===========
Basic Earnings Per Share $ 0.03 $ 0.05 $ 0.01 $ 0.02
=========== =========== =========== ===========
Diluted Earnings Per Share $ 0.03 $ 0.05 $ 0.01 $ 0.02
=========== =========== =========== ===========
Weighted Average Shares - Basic 14,359,738 14,111,339 14,204,448 14,048,236
=========== =========== =========== ===========
Weighted Average Shares - Diluted 14,456,779 14,417,106 14,298,155 14,163,279
=========== =========== =========== ===========
See notes to consolidated financial statements.
2
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended November 30,
Unaudited
2006 2005
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 472,810 $ 666,378
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 85,530 52,890
Provision for doubtful accounts 5,800 11,798
Stock based compensation expense 49,958 --
Gain on sale of equipment 17,723 --
Decrease (Increase) in:
Accounts receivable 80,462 (249,758)
Inventories 968 (85,712)
Prepaid expenses and other current assets (266) 74,252
(Decrease) Increase in:
Accounts payable and accrued expenses (74,631) (164,772)
----------- ---------
Net Cash Provided By Operating Activities 638,354 305,076
----------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Patent Application Costs (5,021) (8,525)
Purchase of equipment and furnishings (209,690) (126,946)
----------- ---------
Net Cash (Used In) Investing Activities (214,711) (135,471)
----------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Line of Credit Repayment -- (350,000)
Proceeds from exercise of stock options and warrants 2,548 335,395
Proceeds from issuance of stock -- 287,500
Repayments of notes payable and loans (19,099) (6,637)
Proceeds from Notes Payable -- 76,406
----------- ---------
Net Cash Provided by (Used In) Financing Activities (16,551) 342,664
----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 407,092 512,269
CASH AND CASH EQUIVALENTS
Beginning of period 1,740,804 421,043
----------- ---------
End of period $ 2,147,896 $ 933,312
=========== =========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 4,552 $ 4,642
=========== =========
See notes to consolidated financial statements.
3
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements
Nine Months Ended November 30, 2006 and 2005
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The accompanying consolidated financial statements of Sono-Tek
Corporation, a New York Corporation (the "Company"), include the accounts of the
Company and its wholly owned subsidiary, Sono-Tek Cleaning Systems, Inc., a New
Jersey Corporation ("SCS") which the Company acquired on August 3, 1999, and
whose operations have been discontinued. There have been no operations of this
subsidiary since Fiscal Year Ended February 28, 2002. All significant
intercompany accounts and transactions are eliminated in consolidation.
Cash and Cash Equivalents - Cash and cash equivalents consist of money market
mutual funds, short term commercial paper and short term certificates of deposit
with original maturities of 90 days or less.
Interim Reporting - The attached summary consolidated financial information does
not include all disclosures required to be included in a complete set of
financial statements prepared in conformity with accounting principles generally
accepted in the United States of America. Such disclosures were included with
the financial statements of the Company at February 28, 2006, and included in
its report on Form 10-KSB. Such statements should be read in conjunction with
the data herein.
The financial information reflects all adjustments, consisting of normal and
recurring, which, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods presented. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The results for such interim periods are not
necessarily indicative of the results to be expected for the year.
Intangible Assets - Include cost of patent applications that are deferred and
charged to operations over seventeen years for domestic patents and twelve years
for foreign patents. The accumulated amortization is $53,220 and $49,780 at
November 30, 2006 and February 28, 2006, respectively.
Reclassifications - Certain reclassifications have been made to the prior period
to conform to the presentations of the current period.
4
NOTE 2: INVENTORIES
Inventories at November 30, 2006 are comprised of:
Finished goods $280,562
Work in process 645,228
Consignment 9,605
Raw materials and subassemblies 799,318
----------
Total 1,734,713
Less: Allowance (215,284)
----------
Net inventories $1,519,429
==========
NOTE 3: STOCK OPTIONS AND WARRANTS
Stock Options - Under the 2003 Stock Incentive Plan, as amended ("2003 Plan"),
options can be granted to officers, directors, consultants and employees of the
Company and its subsidiaries to purchase up to 1,500,000 of the Company's common
shares. The 2003 Plan supplemented and replaced the 1993 Stock Incentive Plan
(the "1993 Plan"), under which no further options may be granted. Options
granted under the 1993 Plan expire on various dates through 2013. During the
nine months ended November 30, 2006, the Board of Directors approved the
issuance of 30,000 options. As of November 30, 2006, there were 119,000 options
outstanding under the 1993 Plan and 815,375 options outstanding under the 2003
plan.
Under both the 1993 and 2003 Stock Incentive Plans, option prices must be at
least 100% of the fair market value of the common stock at time of grant. For
qualified employees, except under certain circumstances specified in the plans
or unless otherwise specified at the discretion of the Board of Directors, no
option may be exercised prior to one year after date of grant, with the balance
becoming exercisable in cumulative installments over a three year period during
the term of the option, and terminating at a stipulated period of time after an
employee's termination of employment.
A summary of the activity of both plans for the nine months ended November 30,
2006 is as follows:
Stock Options Outstanding February 28, 2006 935,500
Granted 30,000
Expired 25,000
Exercised 6,125
-------
Stock Options Outstanding November 30, 2006 934,375
=======
5
NOTE 4: STOCK-BASED COMPENSATION
On March 1, 2006, the Company adopted Statement of Financial Accounting
Standards (SFAS) 123R, Share-Based Payment, under the modified prospective
method. The Company had previously accounted for stock-based compensation plans
under the fair value provisions of SFAS 123. The adoption of SFAS 123 did not
significantly impact the Company's financial position or results of operations.
Under SFAS 123R, actual tax benefits recognized in excess of tax benefits
previously established upon grant are reported as a financing cash inflow. Prior
to adoption, such excess tax benefits were reported as an increase to operating
cash flows.
During the transition period of the Company's adoption of SFAS 123R, the
weighted-average fair value of options has been estimated on the date of grant
using the Black-Scholes options-pricing model with the following
weighted-average assumptions used: expected volatility ranging from 40% to 109%;
risk-free interest rate ranging from 3.25% to 4%; and an expected four-year term
for options granted.
For the nine months ended November 30, 2006, net income and earnings per share
reflect the actual deduction for stock-based compensation expense. The total
stock-based compensation expense for the nine months ended November 30, 2006 was
$49,958. The expense for stock-based compensation is a non-cash expense item.
Under the requirements of FAS 123R, the Company is not required to restate prior
period earnings, however, the Company is required to supplement its financial
statements with additional pro forma disclosures. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the date
of grant, the Company's net income and basic and diluted earnings per share
would have been reduced to the pro forma amounts for the periods indicated
below.
Nine Months Ended Three Months Ended
November 30, 2005 November 30, 2005
----------------- -----------------
Net Income:
As reported $666,378 $280,203
Deduct: Stock based employee
compensation expense under
fair value based method for all
awards, net of tax effects 27,029 7,816
-------- --------
Pro forma net income $639,349 $272,387
======== ========
Basic and diluted earnings per share:
As reported $ 0.05 $ 0.02
Pro forma $ 0.04 $ 0.02
6
NOTE 5: EARNINGS PER SHARE
The denominator for the calculation of diluted earnings per share at November
30, 2006 and 2005 are calculated as follows:
Nine Months Ended Three Months Ended
November 30, November 30,
2006 2005 2006 2005
----------------------- -----------------------
Denominator for basic earnings per share 14,359,738 14,111,339 14,204,448 14,048,236
Dilutive effect of warrants -- 41,010 -- 1,591
Dilutive effect of stock options 97,041 264,757 93,707 113,452
---------- ---------- ---------- ----------
Denominator for diluted earnings per share 14,456,779 14,417,106 14,298,155 14,163,279
========== ========== ========== ==========
NOTE 6: OTHER INCOME
As previously disclosed on Form 8-K, filed on July 5, 2005, the Company
determined that a former employee had misappropriated approximately $250,000 of
the Company's monies, primarily through unauthorized check writing from the
Company's accounts over a period of three calendar years. The Company had
previously expensed substantially all of the misappropriated funds over the
years.
The Company recovered $8,492 during the nine months ended November 30, 2006 and
$157,605 during the year ended February 28, 2006. The Company is pursuing
appropriate remedies to recover the balance of the funds. As previously
discussed, the Company can offer no assurances that it will be successful in its
attempt to collect the balance of the remaining restitution.
7
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Forward-Looking Statements
We discuss expectations regarding our future performance, such as our business
outlook, in our annual and quarterly reports, press releases, and other written
and oral statements. These "forward-looking statements" are based on currently
available competitive, financial and economic data and our operating plans. They
are inherently uncertain, and investors must recognize that events could turn
out to be significantly different from our expectations. The following risks are
by no means all inclusive but are designed to highlight what we believe are
important factors to consider when evaluating our trends and future results.
- Our ability to respond to competition in national and global
markets.
- General economic conditions in our markets.
We undertake no obligation to update any forward-looking statement.
Overview
Sono-Tek has developed a unique and proprietary series of ultrasonic atomization
nozzles, which are being used in an increasing variety of electronic, medical,
industrial, and nanotechnology applications. These nozzles are electrically
driven and create a fine, uniform, low velocity spray of atomized liquid
particles, in contrast to common pressure nozzles. These characteristics create
a series of commercial applications that benefit from the precise, uniform, thin
coatings that can be achieved. When combined with significant reductions in
liquid waste and less overspray than can be achieved with ordinary pressure
nozzle systems, there is lower environmental impact.
We have had a well established position in the domestic electronics assembly
industry for many years, based on our SonoFlux spray fluxing equipment, which
accounted for a significant portion of our business. Our SonoFlux equipment
saves customers from 40% to 80% of the liquid flux required to solder printed
circuit boards over more labor intensive methods, such as foam fluxing. Less
flux equates to lower material cost, fewer chemicals in the workplace, and less
clean-up. Also, the SonoFlux equipment reduces the number of soldering defects,
which reduces the level of rework.
Several years ago, we recognized that the trend in the electronics assembly
industry was a move toward offshore production into China and other developing
countries. The change in the global structure of this business created the need
for Sono-Tek to change as well.
One change that has proven to be successful is our diversification into the
medical device market. In the past three years, we have focused engineering
resources on the medical device market, with emphasis on providing coating
solutions for the new generation of drug coated stents. We have sold a
significant number of specialized ultrasonic nozzles and MediCoat stent coating
systems to large medical device customers. Sono-Tek's stent coating systems are
8
superior compared to pressure nozzles in their ability to uniformly coat the
very small arterial stents without creating webs or gaps in the coatings. We
also sell a bench-top, fully outfitted stent coating system to a wide range of
customers that are manufacturing stents and/or applying coatings to be used in
developmental trials.
Another change that has stimulated an increase in business has been the
development of the WideTrack coating system, a broad based platform for applying
a variety of coatings to moving webs of glass, textiles, plastic, metal, food
products and packaging materials. The WideTrack is a long term product and
market development effort. Thus far, we have made successful inroads with
WideTrack systems into the glass, medical textile (bandages) and solar and fuel
cell industries. We plan to increase our marketing efforts into the broader
textile and food industry markets. This will require a continuation of market
and technology development in these areas in the years ahead. Some of these
WideTrack applications involve nano-technology based liquids. We believe there
is an excellent fit between the thin, precise films required in nano-technology
coating applications and our ultrasonic nozzle systems.
In the electronics, medical device and WideTrack coating markets, it has been
incumbent upon us to focus our attention and resources on the development of a
much greater international presence. We believe we have accomplished this and
plan to continue our marketing efforts. Our international sales have risen from
approximately 20% of total revenues in Fiscal Year 2003 to over 54% today, and
we expect to increase that percentage in the years ahead.
Past history shows the cyclical nature of the electronics business. This cycle,
coupled with the increasing trend toward moving electronics production offshore,
created a need to diversify. As expected, our US based electronics business has
declined this year and is approximately 20% below previous levels, as a result
of the trend toward production moving offshore, coupled with a slower economy
and the reduced competitiveness of our US based automotive customers. We have
been able to offset this reduction in US electronics sales with an increase in
our international electronics, medical device and WideTrack coating sales.
The creation of technological innovations and the expansion into new
geographical markets requires the investment of both time and capital. These
investments are clearly shown in the year over year increase in both R&D and
Marketing and Sales expenses, resulting in a reduction in our reported net
income. However, the Company is in a good position to make these expenditures
based on its strong balance sheet with an excellent cash position and virtually
no debt. Although there is no guarantee of success, we expect that over time,
these newer markets will be the basis for Sono-Tek's continued growth and will
contribute to future profitability. It is management's opinion that this
strategy will be a better one than being bound to a shrinking domestic market.
9
Liquidity and Capital Resources
Working Capital - Our working capital increased $394,000 from a working capital
of $3,699,000 at February 28, 2006 to $4,093,000 at November 30, 2006. The
Company's current ratio is 6.24 to 1 at November 30, 2006 as compared to 5.33 to
1 at February 28, 2006.
Stockholders' Equity - Stockholder's Equity increased $525,000 from $4,230,000
at February 28, 2006 to $4,755,000 at November 30, 2006. The increase is the
result of net income of $473,000, stock option exercises of $2,500 and an
adjustment for stock based compensation expense of $50,000.
Operating Activities - Our operations provided $638,000 of cash for the nine
months ended November 30, 2006, an increase of $333,000 when compared to the
nine months ended November 30, 2005.
Investing Activities - We used $215,000 for the purchase of capital equipment
and patent application costs during the nine months ended November 30, 2006
compared to the use of $135,000 during the nine months ended November 30, 2005.
Financing Activities - For the nine months ended November 30, 2006, we used
$16,500 in financing activities resulting from the repayment of notes payable of
$19,000 and the proceeds of stock option exercises of $2,500. For the nine
months ended November 30, 2005, the net cash provided by financing activities
was $343,000 resulting from: the issuance of stock and stock option exercises of
$623,000, repayment of the outstanding line of credit of $350,000 and the net
proceeds of notes payable of $70,000.
Results of Operations
During the nine month period ended November 30, 2006, our sales increased
$157,000 or 3% to $5,240,000 as compared to $5,083,000 for the nine months ended
November 30, 2005. For the three months ended November 30, 2006, our sales
decreased $47,000 when compared to the three months ended November 30, 2005.
During the nine month period ended November 30, 2006, sales of our Nozzles,
Medi-Coat systems and Fluxer units increased. The increase in sales of these
units was offset by a decrease in sales of WideTrack units and EVS systems.
Our gross profit increased $129,000 to $2,615,000 for the nine months ended
November 30, 2006 from $2,486,000 for the nine months ended November 30, 2005.
The gross profit margin was 49.9% of sales for the nine months ended November
30, 2006 as compared to 48.91% of sales for the nine months ended November 30,
2005. Our gross profit decreased $6,000 to $811,000 for the three months ended
November 30, 2006 from $817,000 for the three months ended November 30, 2005.
The gross profit margin was 49.94% of sales for the three months ended November
30, 2006 as compared to 48.91% of sales for the three months ended November 30,
2005.
10
Research and product development costs increased $150,000 to $597,000 for the
nine months ended November 30, 2006 from $447,000 for the nine months ended
November 30, 2005 and $67,000 to $219,000 for the three months ended November
30, 2006 from $152,000 for the three months ended November 30, 2005. The
increases were due to increased engineering personnel, engineering materials,
food industry initiatives and increased depreciation expense.
Marketing and selling costs increased $134,000 to $966,000 for the nine months
ended November 30, 2006 from $832,000 for the nine months ended November 30,
2005 and $53,000 to $306,000 for the three months ended November 30, 2006 from
$253,000 for the three months ended November 30, 2005. The increases were due
principally to increased international travel expenses, international
representative commissions and trade show expenses.
General and administrative costs increased $28,000 to $629,000 for the nine
months ended November 30, 2006 from $601,000 for the nine months ended November
30, 2005 and $2,000 to $190,000 for the three months ended November 30, 2006
from $188,000 for the three months ended November 30, 2005. The increase was
principally due to recording the current period stock based compensation expense
of $50,000. We are now required to directly expense the effects of stock based
compensation expense, a non-cash expense item.
Interest income increased $41,000 to $49,000 for the nine months ended November
30, 2006 compared to the nine months ended November 30, 2005. Our present
investment policy is to invest excess cash in short term commercial paper with
an S & P rating of at least A1+.
Our net income was $473,000 and $114,000 for the nine and the three month
periods ended November 30, 2006 as compared to $666,000 and $280,000 for the
nine and three month periods ended November 30, 2005.
The Company's backlog of firm orders was $253,000 at November 30, 2006. All of
these orders are deliverable before the end of the Company's current fiscal
year, which is February 28, 2007.
Critical Accounting Policies
The discussion and analysis of the Company's financial condition and results of
operations are based upon the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the Company to make estimates and judgments that affect the reported amount of
assets and liabilities, revenues and expenses, and related disclosure on
contingent assets and liabilities at the date of the financial statements.
Actual results may differ from these estimates under different assumptions and
conditions.
11
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and may potentially result in
materially different results under different assumptions and conditions. The
Company believes that critical accounting policies are limited to those
described below. For a detailed discussion on the application of this and other
accounting policies see Note 2 to the Company's consolidated financial
statements included in Form 10-KSB for the year ended February 28, 2006.
Accounting for Income Taxes
As part of the process of preparing the Company's consolidated financial
statements, the Company is required to estimate its income taxes. Management
judgment is required in determining the provision on its deferred tax asset.
During the fourth quarter of the year ended February 29, 2004, the Company
reduced the valuation reserve for the deferred tax asset resulting from the net
operating losses carried forward due to the Company having demonstrated
consistent profitable operations. In the event that actual results differ from
these estimates, the Company may need to again adjust such valuation reserve.
Stock-Based Compensation
The computation of the expense associated with stock-based compensation requires
the use of a valuation model. SFAS 123R is a new and very complex accounting
standard, the application of which requires significant judgment and the use of
estimates, particularly surrounding Black-Scholes assumptions such as stock
price volatility, expected option lives, and expected option forfeiture rates,
to value equity-based compensation. The Company currently uses a Black-Scholes
option pricing model to calculate the fair value of its stock options. The
Company primarily uses historical data to determine the assumptions to be used
in the Black-Scholes model and has no reason to believe that future data is
likely to differ materially from historical data. However, changes in the
assumptions to reflect future stock price volatility and future stock award
exercise experience could result in a change in the assumptions used to value
awards in the future and may result in a material change to the fair value
calculation of stock-based awards. SFAS 123R requires the recognition of the
fair value of stock compensation in net income. Although every effort is made to
ensure the accuracy of our estimates and assumptions, significant unanticipated
changes in those estimates, interpretations and assumptions may result in
recording stock option expense that may materially impact our financial
statements for each respective reporting period.
Impact of New Accounting Pronouncements
FASB 157 - Fair Value Measurements
In September 2006, the FASB issued FASB Statement No. 157. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is a
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practices. This Statement is effective for
financial statements for fiscal years beginning after November 15, 2007. Earlier
application is permitted provided that the reporting entity has not yet issued
financial statements for that fiscal year. Management believes this Statement
will have no impact on the financial statements of the Company once adopted.
12
SONO-TEK CORPORATION
CONTROLS AND PROCEDURES
The Company has established and maintains "disclosure controls and procedures"
(as those terms are defined in Rules 13a -15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934 (the "Exchange Act'). Christopher L. Coccio,
Chief Executive Officer and President (principal executive) and Stephen J.
Bagley, Chief Financial Officer (principal accounting officer) of the Company,
have evaluated the Company's disclosure controls and procedures as of November
30, 2006. Based on this evaluation, they have concluded that the Company's
disclosure controls and procedures were effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is (1) recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms, and (2) accumulated and communicated to Management, including our
Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding timely disclosure.
In addition, there were no changes in the Company's internal controls over
financial reporting during the third fiscal quarter of 2007 that have materially
affected, or are reasonably likely to materially affect, internal controls over
financial reporting.
13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits
31.1 - 31.2 - Rule 13a - 14(a)/15d - 14(a) Certification
32.1 - 32.2 - Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: January 12, 2007
SONO-TEK CORPORATION
(Registrant)
/s/ Christopher L. Coccio
By: ____________________________________
Christopher L. Coccio
Chief Executive Officer and President
/s/ Stephen J. Bagley
By: ____________________________________
Stephen J. Bagley
Chief Financial Officer
15